Balanced Advantage Funds

    Investors are often considered to be a sensitive group - they can be easily excited and demotivated. In a declining market, the fear of potential losses prompts them to exit, while in a rising market, they rush to enter. Although the market direction is always upward in the long run, short-term volatility is unavoidable. This is the part that most investors find difficult to accept. However, we are witnessing a gradual increase in investor acceptance of short-term volatility. As an investor, it is natural to have fears and concerns about the market. Some of the common fears that sensitive investors may have include overconfidence, loss aversion, portfolio construction and diversification, misuse of information, and cultural differences in investing. It is important to be aware of these biases and pitfalls and to take steps to avoid them. By doing so, investors can make more informed and rational decisions and achieve better long-term results.

Short-term downsides are inevitable in investments, but they can be mitigated. One effective way to limit these downsides is by investing in a balanced advantage fund (BAF). Balanced advantage funds (BAFs) can be an effective way to deal with market volatility. Contrary to popular belief, the best time to invest in equities is when the markets are declining, and valuations are attractive. A falling market can lead to gains in the future. Each BAF scheme has its own unique model that predicts market direction based on valuation parameters and allows the fund manager to adjust equity exposure. Unlike an equity scheme or a typical balanced hybrid fund, the BAF can reduce its equity holding when the markets look expensive and are likely to witness a sharp decline.

Balanced advantage funds (BAFs) can help reduce the downside of a scheme as they decline less than the overall market correction. When the markets rise again, BAFs are well positioned to capitalize on the gains by increasing equity allocation when valuations turn attractive. The dynamic asset allocation strategy of the fund indicates that the exposure to equity and debt asset classes is flexible and changes according to the dynamic market conditions. In an equity-favorable scenario, balanced advantage funds (BAFs) increase gross equity exposure and reduce debt exposure, and vice versa. The exposure is dynamically managed in such a manner that the schemes remain equity-oriented, with gross equity (equity plus arbitrage) exposure at 60-65% and, therefore, enjoy equity taxation. BAF is a ‘buy it, shut it, forget it’ kind of fund. Investing in it does away with the need to find the opportune time in the market because the scheme aims to find the right opportunities for the investor in any market cycle. While gaining more than the market is important for wealth creation, it is equally important to fall less than the overall market to reduce potential losses in one’s portfolio. This is where BAFs come in handy as they aim to limit the downside risk of the portfolio while still providing exposure to the equity markets.

Balanced Advantage Funds (BAFs) are a good investment option for sensitive investors who want to limit their downsides while still enjoying the benefits of equity exposure. BAFs invest in a mix of equity, debt, and arbitrage instruments with the aim of capital protection while offering reasonable wealth creation opportunities. They are suitable for investors who are willing to take moderate risks and provide an opportunity to generate consistent and regular passive income, making them a beneficial contribution to an individual’s retirement fund. The funds’ dynamic asset allocation strategy indicates that the exposure to equity and debt asset classes is flexible and changes as per the dynamic market conditions. This helps reduce the scheme’s downside as it declines less than the overall market correction.